Question 1

To measure the gains and losses from a tax on a good, economists use the tools of

Accepted Answer

A) macroeconomics. 
B) welfare economics. 
C) international-trade theory. 
D) circular-flow analysis. 
A) macroeconomics. 
B) welfare economics. 
C) international-trade theory. 
D) circular-flow analysis.

Question 2

Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A) After the tax is imposed, the equilibrium quantity of diapers is 900 per month. 
B) The demand for diapers is more elastic than the supply of diapers. 
C) The deadweight loss of the tax is $12.50. 
D) The tax causes a decrease in consumer surplus of $380. 
A) After the tax is imposed, the equilibrium quantity of diapers is 900 per month. 
B) The demand for diapers is more elastic than the supply of diapers. 
C) The deadweight loss of the tax is $12.50. 
D) The tax causes a decrease in consumer surplus of $380.

Question 3

Which of the following statements is correct?

Accepted Answer

A) A decrease in the size of a tax always decreases the tax revenue raised by that tax. 
B) A decrease in the size of a tax always decreases the deadweight loss of that tax. 
C) Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve. 
D) An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve. 
A) A decrease in the size of a tax always decreases the tax revenue raised by that tax. 
B) A decrease in the size of a tax always decreases the deadweight loss of that tax. 
C) Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve. 
D) An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.

Question 4

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

A) The demand for gasoline becomes more inelastic. 
B) The slope of the supply curve for gasoline becomes steeper. 
C) The amount of the tax per gallon of gasoline increases. 
D) All of the above are correct. 
A) The demand for gasoline becomes more inelastic. 
B) The slope of the supply curve for gasoline becomes steeper. 
C) The amount of the tax per gallon of gasoline increases. 
D) All of the above are correct.

Question 5

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Accepted Answer

A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss. 
A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss.

Question 6

A tax placed on buyers of tuxedoes shifts the

Accepted Answer

A) demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B) demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C) supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D) supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease. 
A) demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B) demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C) supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D) supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.

Question 7

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

A) $250. 
B) $500. 
C) $750. 
D) $1,000. 
A) $250. 
B) $500. 
C) $750. 
D) $1,000.

Question 8

Taxes on labor have the effect of encouraging

Accepted Answer

A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy. 
A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy.

Question 9

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-23. The curve that is shown on the figure is called the

Accepted Answer

A) deadweight-loss curve. 
B) tax-incidence curve. 
C) Laffer curve. 
D) Lorenz curve. 
A) deadweight-loss curve. 
B) tax-incidence curve. 
C) Laffer curve. 
D) Lorenz curve.

Question 10

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:  
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:   If T = 40, how much tax revenue will be collected from this tax?

Accepted Answer

Tax revenu

Question 11

Taxes are costly to market participants because they

Accepted Answer

A) transfer resources from market participants to the government. 
B) alter incentives. 
C) distort market outcomes. 
D) All of the above are correct. 
A) transfer resources from market participants to the government. 
B) alter incentives. 
C) distort market outcomes. 
D) All of the above are correct.

Question 12

When the government imposes taxes on buyers or sellers of a good, society

Accepted Answer

A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve. 
A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve.

Question 13

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Accepted Answer

A) True 
 B)False

Question 14

Anger over British taxes played a significant role in bringing about the

Accepted Answer

A) election of John Adams as the second American president. 
B) American Revolution. 
C) War of 1812. 
D) "no new taxes" clause in the U.S. Constitution. 
A) election of John Adams as the second American president. 
B) American Revolution. 
C) War of 1812. 
D) "no new taxes" clause in the U.S. Constitution.

Question 15

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Accepted Answer

A) smaller the deadweight loss from the tax. 
B) greater the deadweight loss from the tax. 
C) more efficient is the tax. 
D) more equitable is the distribution of the tax burden between buyers and sellers. 
A) smaller the deadweight loss from the tax. 
B) greater the deadweight loss from the tax. 
C) more efficient is the tax. 
D) more equitable is the distribution of the tax burden between buyers and sellers.

Question 16

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

Accepted Answer

A) $60. 
B) $45. 
C) $30. 
D) $15. 
A) $60. 
B) $45. 
C) $30. 
D) $15.

Question 17

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The per-unit burden of the tax on sellers is

Accepted Answer

A) $7. 
B) $5. 
C) $4. 
D) $3. 
A) $7. 
B) $5. 
C) $4. 
D) $3.

Question 18

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Accepted Answer

A) $25 
B) $20 
C) $5 
D) $0 
A) $25 
B) $20 
C) $5 
D) $0

Question 19

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

A) The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B) The incidence of the tax depends upon the price elasticities of demand and supply. 
C) The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D) The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit. 
A) The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B) The incidence of the tax depends upon the price elasticities of demand and supply. 
C) The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D) The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.

Question 20

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

To measure the gains and losses from a tax on a good, economists use the tools of

Which of the following statements is correct?

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

The decrease in total surplus that results from a market distortion, such as a tax, is called a

A tax placed on buyers of tuxedoes shifts the

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Taxes on labor have the effect of encouraging

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. The curve that is shown on the figure is called the

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much tax revenue will be collected from this tax?

Taxes are costly to market participants because they

When the government imposes taxes on buyers or sellers of a good, society

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Anger over British taxes played a significant role in bringing about the

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on sellers is

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Which of the following statements is correct regarding the imposition of a tax on gasoline?

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

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